We expect Thirumalai Chemicals' near term volume growth to come from increased capacity for food acids, fine chemicals, the improved operations from Malaysian subsidiary, followed by increased capacity for Phthalic Anhydride (+60,000 MT in 2019).

Continuing with our effort to review our portfolio to reflect basket of high conviction ideas with better earnings outlook, we make one change in our Diwali Portfolio - replacing Axis Bank with Thirumalai Chemicals. The portfolio since its inception in October 2017, has delivered 17% return against 2% rise in the benchmark Nifty.

We maintain our long-term conviction that Axis Bank will emerge as a winner from the banking sector clean-up exercise and hence accumulating the weakness has been recommended by our team. However, post the RBI’s circular on bad asset recognition, we expect elevated provision to impact near-term earnings.

We are encouraged by company’s recent earnings traction in domestic business and the turnaround in Malaysian subsidiary. Domestic business has fared well in recent times due to improving pricing trend, supply tightness and subdued raw material cost (ortho xylene).

We expect near term volume growth to come from increased capacity for food acids, fine chemicals, the improved operations from Malaysian subsidiary, followed by increased capacity for Phthalic Anhydride (+60,000 MT in 2019).

Based on recent quarterly results, we had upgraded our earnings expectations. Currently stock is trading at a multiple of 10.1x 2019e earnings, which is reasonable and at a discount compared to peers in the chemical universe.